12.7.1 General

A. Insurance of advances is the process of releasing insured mortgage funds and other funds necessary for the construction, acquisition and/or refinancing of the project. The following general criteria apply to the advancing of such funds:

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Chapter 12 Construction Period 12.7 Application for Insurance of Advances

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1. All escrowed funds for on-site improvements (with the possible exception of grant/loan proceeds furnished by a government agency or instrumentality or tax credit equity proceeds) must be disbursed before mortgage proceeds. See Chapter 14 for instructions on the pro-rata disbursement of tax credit equity proceeds. EB-5 Investments must be funded in advance, in the same way as other equity sources, and are not eligible to be disbursed on a pro-rata basis.

2. The amount of construction funds approved and advanced for insurance must be consistent with construction progress as approved by the HUD Inspector, except in the case of the initial and final advance which must be approved by the Regional Office Production Director, See Section 12.7.1.A.6 below.

3. Other mortgageable items must be adequately documented with bills and/or receipts before funds can be approved and advanced for insurance.

4. The amount advanced for construction items must be adjusted for a 10% holdback until 50% completion then reduced per Section 12.15.1.A.3 below.

5. The final amount approved for insurance must be supported by certified costs recognized in the cost certification review. Projects that are exempt from the cost certification process can submit for HUD’s review a copy of their final Sources and Uses Statement prepared by the allocating State Housing Finance Agency or in the alternative, a statement of the final sources and uses amounts prepared by the title insurance company providing services for the project.

6. The Application for Insurance of Advance of Mortgage Proceeds, form HUD-92403, is initiated by the mortgagor. The initial and final advances must be submitted by the mortgagee to HUD for review and approval. Interim advances are approved by the mortgagee, based upon the HUD Inspector’s approval of the construction amount. The approved Lender’s construction loan administrator must sign forms HUD-92403 and HUD-92448 in the Authorized HUD Official signature block.

   • For the initial and final advances, the Regional Production Director must sign forms HUD-92403 and HUD-92448, in the following spaces:

• 1. Under Authorized HUD Official for form HUD-92403, and
• 2. Under Director, Housing Production for form HUD-92448.

• For other interim advances, the Lender (i.e., either the Lender’s Underwriter or construction loan administrator) must sign forms HUD-92403 and HUD-92448 for HUD, in the same spaces as described for signatures by the Regional Production Director for initial and final advances in the immediately preceding sub-paragraph 6.a.

7. Requests for funds must be supported with relevant evidence attached to form HUD-92403 and form HUD-92448, Contractor’s Requisition, such as bills and receipts.

8. Please see Chapter 19, Closings for additional requirements related to title and survey matters.